“W” is for water.  Water, water everywhere… including in the world of tax.  Sometimes water is deductible sometimes it is not.  If you have a rental property, feel free to deduct the water bill as part of your utilities expense for the rental property.  That means if you own it and rent it out to someone else and you are paying the water bill, its deductible.  That doesn’t mean if you are renting it there is any way to deduct the utilities.  If you own a house that is just used as your principal residence your water bill won’t be deductible since it is just a personal expense.

Sometimes water can cause damage to your property.  Casualty losses fall in the nebulous sometimes deductible category.  Are the costs to repair a casualty to your property a deductible expense?  Yes.  Is that tax deduction going to save you any taxes?  Maybe.  A casualty first needs to be a single identifiable event. The gradual erosion of the property over time due to weather is not a casualty.  A single storm that damages your property is a casualty.

A casualty is deductible to the extent that the costs exceed $100 and 10% of your AGI for the year.  So if your costs to repair are $85 that’s not going to work.  If your income for the year was $350,000 and the costs to repair are less than $35,000 you are out of luck.  As you can see a 10% threshold knocks out many of the casualties from having a tax benefit.  One other important thing to note on the casualties is that a net operating loss generated from a casualty loss is eligible for a three-year carryback instead of the customary two-year carryback period.  Good news is you get an extra carryback year! Bad news is that you had a casualty loss that exceeded your income for the year, so it’s a bit of good news with a big pile of bad news.

Taxes A to Z – still randomly meandering through tax topics, but at least for 26 posts in an alphabetical order.